Terms and Conditions of Mobile Remote Deposit Capture

This report examines how financial institutions present mobile remote deposit capture (mRDC) to their customers. The technology, first introduced in 2009, allows individuals to take smartphone or tablet photos of endorsed checks and deposit them through an app provided by their bank or prepaid card company. For this report, Pew reviewed mRDC availability and policies at 50 banks and 51 prepaid card companies. The report identifies 10 areas in which the terms of mRDC products are poorly disclosed to prospective customers or basic features, such as notifications regarding the status of deposited funds, appear to be generally unavailable. Pew concludes that greater transparency could be a powerful tool to help providers build consumers’ confidence in mobile banking.

OVERVIEW

Mobile remote deposit capture (mRDC) is a relatively new technology that enables consumers to deposit checks to a checking account or general purpose reloadable prepaid card using a mobile device with an Internet connection and a camera. To initiate mRDC transactions, consumers use a mobile banking application (app) to take photos of the front and back of endorsed paper checks and then submit the images to their banks or prepaid card companies through the app. The 2004 Check Clearing for the 21st Century Act, known as the Check 21 Act, facilitated the creation of this technology, and mRDC has grown in popularity since it was introduced in 2009.

The mRDC technology potentially furnishes solutions to several problems with the financial services status quo. It provides access to financial institutions for consumers who have difficulty getting to a branch or ATM or are disinclined to use them. It may provide a lower-cost alternative to prepaid card-loading facilities and to check-cashing storefronts and may offer convenience for busy consumers hoping to save time spent physically depositing checks and/or waiting for them to clear.

Because the technology has come into wide use only in the past few years, little research has been done to explore mRDC products and how they are presented to consumers. To begin filling this gap, The Pew Charitable Trusts examined mRDC availability and terms for 50 banks and 51 prepaid card companies. (See Appendixes B and C.) Thirty-seven of the 50 banks and 21 of the 51 prepaid card companies offered mRDC services to their customers.

This report focused on the terms and conditions provided by those financial institutions offering mRDC that consumers may consider essential before choosing to use the service, including cost, the speed at which their deposited funds become available to spend or withdraw, and customer eligibility requirements.

The analysis found that:

• Banks are more likely than prepaid card companies to offer mRDC, although several large banks do not yet do so.
• Terms and conditions of mRDC are typically available to prospective customers online rather than through the mobile banking app that they would use to make mRDC deposits.
• Large majorities of banks and prepaid card companies disclose some terms and conditions for using mRDC, including the costs, enrollment requirements, deposit limits, and posting policies; however, only one institution discloses all of them.
• Most banks disclose that mRDC is free to the consumer, though some charge for this service. Conversely, most prepaid card companies assess a fee with disclosed costs of as much as 4 percent of a deposit.
• Among the prepaid card companies studied, all disclose funds-availability policies and most give choices for availability, including an immediate option for a fee. By contrast, almost half of the banks examined do not disclose these terms, but of those that do, most make funds available between one and two days after posting the deposit.
• Most banks do not disclose whether mRDC deposits follow funds-availability rules that usually apply to checking accounts; of those that do, all say that these rules do not apply.
• Most banks and prepaid card companies alike inadequately disclose whether they provide alerts on the status of mRDC deposits, including those that are rejected.

More research is needed to determine whether policy improvements would benefit consumers, and which would be most effective, but transparency is a necessary quality of all financial products. This analysis indicates that many providers of mRDC fail to market it in a way that prospective consumers can clearly understand. A more transparent marketplace would build consumers’ confidence in mRDC and the other beneficial features of mobile banking.